Globalization May Lead to an Increasingly larger Middle Class

J.J. Smith, SHRM

Alexandria, Virginia — Globalization could spur average incomes around the world to grow faster during the next 25 years than they grew from 1980 to 2005, says a study by the World Bank. Developing countries will play a leading role in globalization, but, unless managed carefully, economic growth in developing nations could be accompanied by income inequality and potentially severe environmental pressures, says the report Global Economic Prospects 2007: Managing the Next Wave of Globalization.

Once the final tally on 2006 growth in developing countries is complete, it is expected to reach a near-record 7 percent, the report says. During 2007 and 2008, growth in developing countries is expected to slow but will likely exceed 6 percent, more than twice the rate in high-income countries, which is expected to be 2.6 percent, the study says.

Globalization might more than double the world economy from $35 trillion in 2005 to $72 trillion in 2030, the report says. While those figures represent a slight acceleration of global growth compared to the past 25 years, it is driven more than ever before by the strong performance of developing countries, Richard Newfarmer, the report’s lead author and economic advisor in the World Bank’s trade department, says in a statement. The exact numbers for the period 2005 to 2030 will undoubtedly turn out to be different, but the underlying trends are relatively impervious to all but the most severe or disruptive shocks, he says.

In addition, broad-based growth in developing countries sustained over the 25-year period will increase workers’ earnings and affect global poverty significantly, says François Bourguignon, World Bank chief economist. “The number of people living on less than $1 a day could be cut in half, from 1.1 billion now to 550 million in 2030,” he says. However, some regions, notably Africa, are at risk of being left behind, and income inequality could widen within many countries, compounding current concerns over inequality between countries, he adds.

By 2030, globalization may triple the “global middle class” in developing countries, the report says. As many as 1.2 billion people in developing countries—15 percent of the world’s population—are expected to join the global middle class by 2030, which is up from 400 million today, the report says. The global middle class will have an annual purchasing power of between $4,000 and $17,000 per capita, providing them access to goods and services currently denied them, the report predicts.

In addition, that purchasing power will provide them with a political voice, says the report, which lists some of the goods and services the global middle class will gain greater access to:

* International travel.
* The purchase of automobiles and other advanced consumer durables.
* International education.
* Major roles in shaping policies and institutions in their countries and the world economy.

Continuing integration of markets will make jobs around the world more subject to competitive pressures, says Uri Dadush, director of the World Bank’s development prospects group and international trade department. As trade expands and technologies spread rapidly to developing countries, the jobs unskilled workers around the world—as well as some lower-skilled white-collar workers—will be eliminated because of cross-border competition, he says. “Rather than trying to preserve existing jobs, governments need to support dislocated workers and provide them with new opportunities. Improving education and labor market flexibility is a key part of the long-run solution,” he says.

In addition, the next wave of globalization will likely intensify stresses on the “global commons” and jeopardize long-term progress, the report warns. Nations will have to work together to play a larger role in issues involving global public goods—from mitigating global warming, to containing infectious diseases like avian flu, to preventing the decimation of the world’s fisheries, the report says.

J.J. Smith is editor/manager of SHRM Online’s Global HR Focus Area